Is there a tax break for shipping jobs overseas?

A: Not specifically for that reason. But companies can deduct business expenses, including the cost of moving a job to another state or even out of the country.

FULL QUESTION

President Obama said on the campaign trail that there is a tax break for companies that ship jobs overseas. That was in response to Mitt Romney’s statement that there is not a tax break for companies that ship jobs overseas. Who is right??

FULL ANSWER

Do companies get a tax break for shipping U.S. jobs overseas? Several readers asked us that question after it came up during the first debate between President Obama and Mitt Romney.

Obama claimed that “companies that are shipping jobs overseas” get tax breaks, saying that they “can actually take a deduction for moving a plant overseas.” But Mitt Romney said that he had “no idea” what the president was talking about, adding that “the idea that you get a break for shipping jobs overseas is simply not the case.” And both men are right, in a way.

There is no specific tax break for the sole purpose of relocating a U.S. job to another country, as Romney said. But the tax code does allow companies to deduct business expenses when calculating their tax liability. And those expenses can include the costs of moving a job to another state or even to another country, according to tax experts with whom we spoke. The White House confirmed in an email that that is what Obama was referring to in the debate.

“Firms can generally deduct business expenses,” said Kimberly Clausing, the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College. “Thus, of course, if firms incurred expenses in moving abroad, they would be able to deduct those expenses.”

“My interpretation is that the President’s statement was accurate,” she said in an email to FactCheck.org

William McBride, chief economist for the pro-business Tax Foundation, agreed with her point about the ability of companies to deduct moving costs as a business expense.

“There are no special tax provisions that provide incentives to move overseas, but, of course, in general, the IRS allows companies to deduct business expenses, one of which is moving expenses, whether within the U.S. or abroad,” he said.

We’ve also writtenbefore onseveral occasions that the tax code has long allowed U.S. corporations doing business abroad to defer paying taxes on any of their “unrepatriated income.” That is to say that the revenue earned by the company’s foreign subsidiary remains untaxed by the IRS until that money is brought back to the parent company in the U.S.

Sometimes politicians also refer to this as a “tax break for shipping jobs overseas.” And Clausing told us that this part of tax law could motivate companies to move business abroad.

“This can provide a huge incentive for locating jobs and income abroad, since many tax haven countries have tax rates that are very low, even approaching zero, and thus the money can grow abroad ‘tax free’ until it is repatriated,” she said.

Others, like the Tax Foundation, see tax deferral as a means of making the U.S. more competitive in the global economy, and providing a “level playing field” for U.S.-based multinational companies.

It’s debatable to what extent the tax break factors into a company’s decision to move operations out of the U.S. But the fact remains that it is there for those who may want to take advantage of it.

Truthmeter and contact info

Fact Checker columns by Mark Robison are rated on a scale from 0 to 10, with 10 being absolutely true with no gray area, 5 being down the middle with good points by both sides, 1 being false with no gray area and 0 being intentionally, maliciously or foolishly false.

Email factchecker@rgj.com if you've got any queries about claims you've heard people make.